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Erasing the Anonymity of Cryptocurrency Transactions

In our Can You Export NFTs to Other Countries? video the firm discussed how the trading of cryptocurrencies may lead to sanctions and the application of the reason to know standard for strict liability of sanctions penalties.

Many government agencies have made it known that they have begun to pay attention to cryptocurrency transactions, so it is only a matter of time before regulations begin to be implemented. The Federal Bureau of Investigation (FBI) recently launched a task force that specifically investigates crimes involving cryptocurrency. The Office of Foreign Assets Control (OFAC) has a sanctions list specifically for cyber-related crimes and has been publishing guidances related to transactions with virtual currencies.

Anonymity has been cited as one of the top allures of cryptocurrency trading aside from the most obvious one, profits. Recently, as NFTs have become more prevalent, it has become easier to erase this anonymity and find at least some details about an individual that you may be transacting with, outside of just their digital wallet address. As NFTs have been used as tools to bridge digital assets to physical ones, crypto traders suddenly require more information to fully fulfill some transactions.

Gucci recently released an NFT collaboration with an artist that allowed purchasers of the NFT to also receive a physical statute of the figure depicted in the NFT. In this transaction alone it is clear that Gucci would need to collect the buyer’s address at the very least, and thus after using crypto to buy the NFT, the connection between the buyer’s physical address and digital wallet address will be drawn. Similar transactions have been more prevalent, especially in fashion and art, as many artists and large brands have begun to transition to taking advantage of the growing popularity of crypto trade.

Furthermore, there have even been physical spaces such as restaurants and events where only NFT holders were allowed. The seven images to the left are the images attached to the NFT tokens needed for advanced membership to a New York City restaurant that is set to open in early 2023. This is another instance in which it would be very likely that the holder of an NFT, wanting to attend one of these settings, would be required to give their name or any other type of identifying information.

As NFT communities begin to build, anonymity has gradually been erased from these transactions. Some collectors of NFTs take part with the sole purpose of being able to show off their assets digitally, and therefore would like for others to know who they are. Some NFTs are strictly one of one in terms of both how they are stored on the blockchain and the design of the digital image that goes alongside it. If the holder of one of these NFTs makes it clear publicly that this item is their position, in many cases it will make their digital wallet very easy to trace.

All of this is important because if crypto traders can find one another, then eventually the government will have systems in place to find and track information on these traders as well. In the instance of OFAC, where sanctions penalties are imposed on any U.S. citizens or entities that conduct business with a blocked individual, avoiding being penalized or even facing criminal charges for your transactions comes down to you as a business owner making a clear effort to identify who you are trading with.

Need help navigating the waters of an OFAC investigation or the threat of one? Click here to contact us for assistance.

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